Election years are often a turbulent time for investors, and the 2024 US presidential election promises to be no exception. With a close race expected between two incumbents, Kamala Harris and Donald Trump, Wall Street is bracing for significant economic uncertainty. The build-up to the election has been particularly unpredictable, with unexpected events like Joe Biden’s withdrawal from the race and the assassination attempt on Trump highlighting the potential for dramatic shifts in the campaign landscape.
For artificial intelligence (AI), which plays an increasingly prominent role in forecasting for broker-dealers, the 2024 election cycle presents a major test. Will AI be able to navigate the heightened volatility and provide accurate predictions for investors? This question is particularly relevant considering the potential impact of varying policies and fiscal stances on market performance.
Morgan Stanley, for instance, has quantified the potential market impact of a Republican victory, which could see an extension of the 2017 tax cuts. This could lead to higher interest rates, impacting corporate profits and stock valuations. The introduction of tariffs could also affect overseas trade and international stocks. Conversely, potential investment opportunities in growth markets like energy, telecommunications, and utilities could emerge under a Republican administration.
However, it’s important to note that historically, markets have performed well regardless of who occupies the White House. Data from IBKRCampus shows that the best-performing portfolio between 1900 and 2023 was a ‘bipartisan’ one that remained invested throughout both Democratic and Republican administrations. While this data suggests that long-term market performance is relatively unaffected by presidential elections, the build-up to elections can lead to periods of heightened market sensitivity, especially during close races. The uncertainty stemming from such elections can increase market fluctuations, prompting some risk-averse investors to withdraw their positions.
This volatility, however, can also represent a significant opportunity for institutions to capitalize on price movements. AI is poised to play a crucial role in backing broker-dealers’ pursuit of fleeting price movements in stocks and commodities on Wall Street. The technology has evolved significantly since the 2020 US presidential election, but will it be adaptable enough to handle the unpredictable nature of the 2024 race?
One key area where AI can excel is in sentiment analysis. By utilizing social media sentiment analysis to gauge public opinion and understand the potential impact of breaking news on voter sentiment, AI can provide valuable insights into the direction of the race and its potential impact on the markets. Social media herding behavior can significantly influence market movements, and AI can leverage this information to track market opportunities and identify potential shifts in sentiment.
In addition to sentiment analysis, AI can also provide broker-dealers with a comprehensive understanding of structured and unstructured data sets. This ability to process vast amounts of information rapidly can help identify trends and capitalize on market opportunities faster than human traders. Combined with prime services that offer access to global equity, forex, and commodities markets, AI has the potential to transform how broker-dealers operate in a volatile election year.
The 2024 US presidential election represents a significant test for AI-powered trading tools. If these tools can successfully navigate the unpredictable landscape and leverage the power of sentiment analysis and data processing, it could mark a watershed moment for the incorporation of AI in driving broker-dealer performance. The coming months will reveal whether AI can truly live up to its potential in the face of heightened uncertainty.
